NEW ENERGY AND WHAT UTILITIES WANT

US renewables continue to be sidelined by utilities
Rikki Stancich, 5 March 2010 (CSP Today)
and
2009/2010 Electric Utility Industry Survey Results
March 2010 (Black & Veatch)

THE POINT
Former CIA Director R. James Woolsey recently told an audience it would be challenging to intentionally design a transmission grid as fragile and vulnerable as the one the U.S. presently relies on. That’s a pretty remarkable achievement, backhanded though it may be.

It therefore should come as no real surprise that for the first time since the 1930s the U.S. has gone 2 consecutive years (2008-09) with diminishing investment in transmission infrastructure. Why mess with an achievement of such distinction? 8-)

As 2009/2010 Fourth Annual Strategic Directions in the Electric Utility Industry Survey; What does the Future Hold for an Industry in Transition? from Black & Veatch and the Sierra Energy Group makes clear, the professionals who operate and maintain the U.S. grid are worried. The survey shows their top three concerns to be reliability, regulation and long-term investment.

Two topical factors are pivotal in the failure to invest in the U.S. grid: (1) The economic crisis has made capital for investment in infrastructure hard to come by, and (2) though some recovery of revenues is expected as the recession eases, pending but as-yet undetermined emissions-regulating legislation makes investors inside and outside the utilities reluctant to move until the terms of the investment become clearer.

So the infrastructure goes on decaying (and Congress goes on debating).

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The Top 10 Insights from the Electric Utility Industry Survey:
(1) Utility industry professtionals rank as their top three concerns reliability, regulation and long-term investment.
(2) Many utilities say their generation assets are near, at or passed planned service life and worry that reduced revenues, even after a recovery comes, will continue to compromise their ability to cope with growing demand.
(3) Utility industry professtionals see a significant future for coal in U.S. power generation.
(4) Utility industry professtionals see nuclear energy, by a narrow margin, as the best choice for emissions-free power.
(5) Utility industry professtionals expect nuclear energy to play an increased role in U.S. electricity generation by 2050.
(6) Utilities are investing in New Energy, especially wind and solar.
(7) Utilities’ foremost environmental concerns are emissions-regulating legislation and water supply availability.
(8) Utility industry professtionals expect some type of national emissions-regulating legislation to be approved by no later than 2012.
(9) Utility industry professtionals do not favor the Cap&Trade system in the current Congressional legislation.
(10) If the Cap&Trade system in the June 2009 House energy and climate bill is enacted, a plurality (but not a majority) of utility industry professtionals believe it will add between $500 and $1000 to the average homeowner’s yearly energy bill by 2015.

The broad spectrum of 329 utility professionals in the survey (147 from investor-owned utilities (IOUs), 78 from the public power sector and 104 from other categories) makes it broadly representative of the U.S. electric utility industry.

Utility industry professionals clearly represent a conservative group. Barely half (52%) believe human activity is responsible for global climate change. This conservative bent is clear in their approach to generation and transmission issues and explains why reliability is the first item on the list. But their concern is nevertheless disconcerting.

Think about this: A survey of folks who are not inclined to be alarmist about the growing evidence of climate change or the spewing of coal or the absence of a place to safely store nuclear waste and do not see the urgency of putting a price on greenhouse gas emissions are nevertheless concerned about the grid’s reliability, a subject on which they are intimately knowledgeable. That’s scary enough to send anybody to the store for candles – or for solar panels.

More than a footnote: Notice that a concern with water supplies made it to number 7 on the list of top 10 concerns, yet their other major environmental concern is the potential burden from greenhouse gas emissions (GhGs) legislation and the majority see nuclear power as the environmentally best choice for future power generation and expect it to grow in use. Odd that a group of utility professionals should (apparently) fail to connect the concern with water and the enormous and inordinate consumption of water in the burning of coal and the reliance on nuclear power.

It's a little like a heroin addict complaining about how dirty the needles are.

The overall impression from the survey is of an industry deeply concerned about its ability to keep the lights on, perhaps so concerned as to be drifting toward demoralization. It is possible the only comfort for them is in knowing crisis breeds opportunity and political leaders rarely respond to anything else.

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THE DETAILS
The predominant fact of life for utility professionals is the singular imperative to keep the lights turned on at the lowest possible price.

That utility industry professionals put the transmission system’s reliability at the top of their list of concerns is a real indication of the grid’s vulnerability. The same people are less concerned about greenhouse gas emissions (GhGs), the environmental degradations of coal and the radioactive hazards of nuclear energy and nuclear waste.

It speaks volumes that the list includes a concern with water supply. Their seems to be a failure to connect water supply concerns with climate change induced drought and with the undue burden that both nuclear power plants and coal burning power plants put on water sources, but the awareness that there is a supply shortage is important. The awareness could very well lead them to connect the dots.

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On the other hand, utility industry professionals’ responsibility to meet the highest level (peak) of demand undoubtedly prejudices them toward the biggest and most established sources of power generation (coal and nuclear).

Only the most progressive minority of utility industry professionals have come to understand the role of distributed generation (DG) and demand response (DR) tools as effective means of coping with the peaking demand on hot summer days when customers turn up their air conditioners and the only alternative to supplying massive extra amounts of electricity seems, therefore, to be rolling brownouts or a blackout and major economic consequences.

Probably the most forward-thinking revealed in the survey was in opinions about the transmission system’s wearing down, wearing out and decaying. Almost a third of utility industry professionals believe their power generation equipment needs replacing. But almost as many think information technology (IT) is where the biggest need for investment is.

And their computers and networks, not their turbines and wires, are what the majority thinks is most vulnerable to acts of terrorism and cyber attack. Almost two-thirds of utility industry professionals expect costs for Critical Infrastructure Protection (CIP) security standards to increase more than 10% and a third expect those costs to increase more than 20%.

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Regulation is much on the minds of utility industry professionals. That is probably partly because of the new administration’s stepped-up efforts to monitor use of stimulus spending, partly because of the wide-ranging talk of increased safeguards for the financial markets and partly because there is continued near-deadlock among regulators over transmission system upgrades and expansion.

Regulation of new IT is one of the chief drivers of cost, IOU professionals say, but public power professionals believe administrating customer-focused initiatives is a greater driver of costs. Both agree, however, that utility industry R&D is last on the list of cost drivers. The unanimity is a sad statement and indicates concern that, in this time of immense technological potential, spending for innovation lags.

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Proven programs to manage users’ demand and improve their efficiency are getting 2% or more of IOUs’ gross revenues ($5-to-$6 billion per year) and an increased part of public utilities’ money.

The attitude toward New Energy is aware but conservative. Utility professionals have the usual concerns, (1) cost, (2) transmission, (3) cost, (4) intermittency, (5) cost, (6) storage and (7) cost.

In the absence of a clear signal from Congress via climate and energy legislation that defines the rules and costs of GhGs in power generation and distribution, those with capital to invest in generation and transmission infrastructure will likely continue to equivocate and utility industry professionals will be forced to continue meeting fluctuating demand with the decaying infrastructure now in place.

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Another uncertainty blocking capital investment in transmission infrastructure and hardware that operators and utility industry professtionals clearly see as at or near the end of its effective service life is the regulatory uncertainty caused by an ongoing tension between the Federal Energy Regulatory Commission (FERC) and state regulators over rate schedules, rate increases and new transmission routes.

More than 40% of the utility industry professionals in the survey saw their generation assets (power plants, substations and conversion boxes, wires and pipelines, IT, controller and administrative tools, maintenance equipment) as at, near or beyond their planned service life.

More than 75% of the survey’s utility industry professionals see coal as a significant part of electricity generation going forward due to cost-restraints, despite strong environmentalist opposition.

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It is likely the financial crisis (and the call for greater regulatory attention to markets in response to it) is at the root of industry professionals’ concerns with regulation and long term investment. Both IOU and public utility watchers believe this concern will last at least through the Obama administration’s first term.

Environmental regulation is a concern to all utilities, though less so to public utilities because they (in general) own and operate less generation capacity.

An aging work force is of great concern throughout the utility industry, probably another indication of a lack of renewal in the sector.

The preference for nuclear power was only by a small majority and a significant number of utility professionals are inclined toward the New Energies as well. 80% said they have wind projects planned or being developed and almost as many have solar projects. Natural gas was their third choice. Both the New Energies and natural gas are getting growing recognition as low emissions options in the sector.

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Just under half of utility industry professionals think nuclear will grow little and supply no more than 20% of U.S. power in 2015 – but only because it takes so long to build nuclear plants. More than half think it will supply 30% or more of U.S. electricity by 2050.

The failure of Congress to make clear exactly which way GhG regulation will go is a major problem for utilities. They cannot make final decisions about what types of power plants to invest in and where to build new transmission.

Though barely half of utility industry professionals believe human activity is responsible for global climate change, over 90% of utility industry professionals expect some kind of federal GhG-limiting legislation by 2012. Most (70% of the IOU people and 75% of the public power people) do not like the proposals now on the table, though about a quarter like the idea of a workable Cap&Trade system.

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The majority believe the U.S. cannot afford such legislation and believe these proposals will increase homeowners’ utility bills $500-to-$1000 per year by 2015.

The survey offers a view of the landscape on which U.S. energy choices will be determined. In that sense, it is the landscape where the economic future of the nation and possibly the fate of the world's climate will play out. The respondents to this survey may seem geekish to some but they could determine an awful lot about an awful lot of lives in the coming decade or two.

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QUOTES
- From the report: “…[D]espite the many issues that arose in 2009
regarding the economy, the financial industry meltdown and developments in the environmental arena, the overall level of intensity of concerns expressed by all of our respondents is lower than last year…[W]e believe the data are indicative of some shift in mood inside of the electricity industry. Given the lack of virtually any positive developments in the economy in general and in the energy industry at large, we interpret the overall survey results to suggest that respondents were pretty much beaten down in 2009, remained confused about direction and lost enthusiasm for the survey. Like deer in the headlamps, respondents might simply be frozen in the face of the glaring challenges. The fact that survey participation rates are down from last year also suggests that the industry is attending to its knitting and focusing on only cost savings activities…”

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- From the report: “A large majority of respondents do not buy into the notion that the future of the industry is a highly dispersed generation model. They see, instead, an evolution towards a hybrid of central and dispersed electricity production systems by 2015…It will be interesting to see how the industry fares in 2010 as the Great Recession unwinds and mid term elections affect legislative agendas. There is no question, however, that utilities will deplete much of their cost-cutting potential while also facing slower than normal (if any) growth. They will need rate relief and rate applications will draw the attention of politicians, consumer advocates and other stakeholders. Increased spending on DSM, EE, Smart Grid, cybersecurity and related IT during a period of declining or flat growth will set up a very challenging business environment for IOU and public power systems alike.”